Your FSA isn’t really “tax free” money if you pay Stupid Tax trying to spend it all by the deadline.

My husband just gave himself a raise by not funding a Flexible Spending Account (FSA) this year. In this Found Money post (#6 in the series): Why FSAs are a losing bet for healthy families and why we put $0 into our Flexible Spending Account this year.

FSAs are use it or lose it. You’re betting up to $2700 that you will spend your guesstimate on out of pocket medical, dental, and vision expenses for the year. If you’re right, you get to spend that money tax free. If you’re wrong, your leftover FSA money goes back to your boss. You’re betting against your health, which seems wrong somehow. And even if your health is good but you know you need to get dental work done, you’re betting that you’ve correctly guessed the total amount of that dental work.

If your dental work is cheaper than you expected, you’ll have to find something to waste the extra FSA money on. If it’s more expensive, you lose out on some tax free spending. Your planning skills had better match your bet: get a written estimate in October so you know how much money to put in the FSA during open enrollment, then get the work done in January when your plan funds. Not many people are that organized. I’m not. Which is why…

This year I threw away $3082 when we were scrambling to spend $2000 in FSA money before it expired. We’re putting zero dollars in our Flexible Spending Account in 2019 and forevermore because I hate gambling. I stupidly funded an FSA year after year because it would “save” us 24% by paying our medical, dental, and vision expenses with tax free money. The problem is, we spent money to “save” money.

It’s just like buying a sweater at Target at 25% off: I still paid 100% more than I should have if I didn’t need the sweater. I live in Phoenix. I don’t need more than one sweater. I certainly don’t need to buy a new sweater every year.

We’re a healthy family, thank God. We don’t need to take money out of every paycheck to pay for medical, dental, and vision services. We do not need to fund an FSA every year.

Here’s the bottom line: Healthy people don’t need to fund an FSA.

In 2017 and 2018 our family spent zero dollars on medical care.
We put $2000 into an FSA (combined total for 2017 and 2018).
We spent $3082 in a very stupid way, trying to use up that $2000 before we lost it.
For healthy families, FSAs are a losing bet.

You can read on for the details of my $3082 Stupid Tax if you’re a numbers nerd like me, or just read this advice:

FSA 101: If you don’t know you’re going to use FSA funds in a legitimate, responsible way, skip the FSA.

HRA vs. FSA:

There are a few names for health savings accounts; ours are called HRA and FSA.

HRA: KC’s work funds $1000 a year that can only be used for medical expenses—not for dental, not for vision.

KC gets $1000 in HRA funds every year from work if we jump through a few hoops, and it rolls over. This is how healthy we are as a family: we have nearly $5000 in the HRA—it will be up to $6000 in January when we get the $1000 for 2019.
We appreciate it even though we’ve barely touched it. That money can offset medical deductibles ($3500 deductible for a family is the worst case scenario for our medical plan). The HRA funds roll over year after year, so at this point if we have two really bad years medically speaking, we’ll only be out $1000 in deductibles plus the 20% or whatever we have to pay for medical services after we hit the family deductible.

FSA: We can take up to $1500 a year out of KC’s checks tax free to get reimbursed for medical, dental, and vision expenses. (IRS limit is $2700 in 2019 but work sets its own limit.) But we can’t use the FSA for medical expenses unless our HRA is empty, and the HRA is never empty so we’re stuck using FSA on dental and vision expenses.

KC’s employer allows reimbursement from the current year’s FSA through March of the next year so we spent $2000 in FSA money this year ($1500 from 2017 and $500 from 2018).

I paid a very high Stupid Tax trying to use up all that tax free money in the FSA.

Dental and vision expenses I paid in March: $3082.
FSA reimbursement from 2017 and 2018 funds $2000.

Yep, that means I wasted $1082 using up those FSA funds—and I really wasted $2600, because if we had shopped around and only bought the services we needed, we would have spent less than $500 for vision and dental exams.

[Tweet “Your FSA isn’t really “tax free” money if you pay Stupid Tax trying to spend it all by the deadline. #budget #money”]

What did we actually need to spend money on?

$50 Eye exams.

That’s the total copay for all four of us to use up the main benefit of the vision insurance we bought for the year. We spent $238 for vision insurance and copays but I could have paid for all four of us to get eye exams without insurance for less money.

$510 Dental exam and cleaning for two kids at the very expensive holistic dentist.

I didn’t want the kids to get x-rays, so we went to the holistic dentist. Guess what? She wanted x-rays too. At this point I had cancelled three dental exams for the kids arguing about the x-rays. I was worn down and trying to spend the FSA money so I stupidly let the holistic dentist take supposedly low-radiation x-rays.
To me, it is worth the extra $155 per kid to expose them to less radiation than the regular dentist would shoot at them. (The regular dentist charges $100 for exam/x-rays/cleaning.)

$49 KC’s dental exam.

KC wanted to have dental work done which is the main reason I funded the FSA, but the regular dentist referred him to a specialist and we were out of time to spend the money.

Here’s where I totally screwed up and squandered $3082:

My first idea was to spend the FSA on braces for Jefferson. He didn’t want braces. That’s another story. We had to spend $2000 before the end of March, and I figured this out the last week of March. So I sent KC to the fancy eyeglass store in the mall and told him to buy whatever he wanted because we had to spend that money! I didn’t know $800 eyeglasses existed before that day.

On the same day I called the holistic dentist and told the receptionist that I had to spend $2000 in FSA money before the end of the week. He found appointments that day for the kids.

Murphy’s Law in action: KC is at the mall on an eyeglass shopping spree with my blessing at the same time that I’m at the holistic dentist who finds three cavities in each kid’s mouth.

How much could two exams and cleanings and six filled cavities cost after all? Normally I’d tell the dentist we’d work on those cavities at home, and since she’s a holistic dentist she’d agree with me. But I needed to spend that money so I told her to fill the cavities. I expected the total bill to be around $700 for both kids.

I paid the $2179 bill and she wouldn’t give me even a tiny discount for paying full price on the spot with a credit card. We’ll find a new holistic dentist.

Remember that I only needed to spend $2000. Here’s what I actually spent: $3082.

$2179 getting ripped off for the kids’ dental work at the very expensive holistic dentist.
$804 buying super expensive glasses for KC.
$49 for KC’s dental exam.
$50 for eye exams for everyone.

I couldn’t use my FSA funds on medical items!

Since KC’s HRA/FSA plans are written so we can’t use FSA money (our own money) on medical expenses until the HRA money (money KC’s job gives us) is used up, I even got screwed out of wasting FSA money on medical supplies.

I did get reimbursed for all of these items from the HRA, but I overpaid for almost all of them thinking I was using my FSA money that I was about to lose before I conceived my grand plan to buy unneeded eyeglasses and fill the kids’ teeth.

The moral of this story: Know how your FSA and HRA plans work! I made a 15 minute phone call in March that made me want to kick myself for not calling once in the four years we had been funding the FSA to ask about details like rollovers and deadlines.

This stupid stuff counts as Medical Expenses:

If it says “Overpaid” that means I could have bought it cheaper at Walmart.

$2.18 grocery store gauze. Overpaid.
$3.27 Grocery store bandaids. Overpaid.
$17.77 Airborne at Walgreens. Totally overpaid.
$6.53 Walmart contacts solution. (I could only find one receipt.)
$6.95 Amazon – evidently a silky sleep mask counts as a medical aid.
$6.39 Walmart reading glasses. Totally overpaid: Dollar Tree sells reading glasses.
$31.13 Amazon. Paid $41.23 for a blood pressure monitor but lost $10 in reimbursement because it wasn’t prescribed.
$5.20 Target contact lense cases. Dollar Tree sells these. Totally overpaid.

Totally overpaid: I bought all this crap at Walgreens because they had some deal that would give me a bunch of Walgreens points if I bought a certain dollar amount of first aid items, but I bought the wrong first aid items and didn’t get the points:

$5.96 Walgreens liquid bandage for me because I sliced my finger open with a dull kitchen knife.
$6.83 Walgreens finger cots to put over my cut finger. I never opened them.
$7.59 Walgreens Finger splint for Jameson who really didn’t need it but it made her happy and more importantly made her stop saying her finger hurt.

What do you think? Should healthy families fund an FSA every year?

Found Money Total: $500

In 2018 we put $500 into the FSA. In 2019 we put zero dollars into the FSA. We had dental and eye exams last year, so we don’t need them this year. Found Money Total: $500.

FSAs Are a Losing Bet for Healthy Families. That’s Why We Put $0 into Our Flexible Spending Account